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Rating Action:

Moody's assigns (P) B1 to New World Resources' proposed notes; outlook negative

03 Feb 2010

Approximately EUR700 million of debt rated

Milan, February 03, 2010 -- Moody's Investors Service has today assigned a provisional (P) B1 rating to the senior secured EUR700 million proposed notes issuance of New World Resources N.V. ("NWR"). The company's Corporate Family Rating (CFR) of B1 and the B3 rating on the existing EUR268 million senior unsecured notes due in May 2015 remain unchanged with a negative outlook. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

"The negative outlook on NWR's ratings reflects Moody's view that the company still has to demonstrate its ability to improve operating performance on the back of only moderately recovering market conditions," said Paolo Leschiutta, a Moody's Vice President -- Senior Analyst, responsible for NWR. Moody's would expect the company to maintain satisfactory credit metrics on an ongoing basis, although the rating agency expects volatility in profitability and cash flow generation to remain high, potentially increasing pressure on the current rating if the company fails to generate positive free cash flow beyond 2009. The outlook could be changed to stable following gradual profitability improvements, on a quarter-on-quarter basis. The current rating assumes a successful bond issuance and full repayment of the company's Senior Secured Facility and Moody's will continue to monitor closely the company's liquidity profile as it expects headroom under financial covenants to remain tight over the short to medium term.

The current CFR of B1 reflects NWR's (i) strategic position as a main player in its sector in Central Europe, (ii) prospects for increasing access to coal reserves, and (iii) a relatively stable customer base. However, these positive credit considerations are offset by (i) the current difficult market conditions, (ii) the group's significant operating risks, given the depth of its mines, (iii) the high level of customer and business concentrations, and (iv) Moody's expectation that key credit metrics will remain weak over the short-to-medium term. NWR liquidity profile will remain dependant upon the company's ability to meet strict financial covenants. The proposed bond issuance -- the proceeds of which will be applied to repay the senior secured bank facility -- should, in Moody's opinion, improve the liquidity profile of the group as the remaining outstanding facility containing financial covenants will be relatively small in size and could potentially be repaid with existing cash balances. In addition, Moody's notes the recently announced plans to dispose of the Energy assets, which, if approved by the relevant antitrust authorities and NWR lenders, will generate ca. EUR122 million of cash proceeds.

The CFR is two notches below the outcome of Moody's Global Mining Industry Rating Methodology, applied to the company with last twelve months (LTM) financial results as at September 2009. The rating differential reflects the fact that historic ratios have been helped by buoyant market conditions in recent years, which are not likely to be repeated going forward, and the event risk associated with the ongoing investment programme of the group. The recent economic downturn has, in particular, resulted in a significant drop in demand for NWR's most profitable coking coal and coke activities, impacting considerably the company's solid financial profile.

The (P) B1 -- loss-given-default (LGD) assessment of LGD3, 47% -- assigned to the proposed senior secured EUR700 million notes issuance reflects the relative ranking of the new instruments within NWR's capital structure and the overall probability of default of the company, to which Moody's assigns a probability-of-default rating (PDR) of B1, and an LGD assessment of LGD3, 47% (expressed through a six-point symbol system that orders expected loss severity from lowest to highest in percentage terms). The new notes benefit from partial guarantees from operating companies, and are secured on share pledges on the main subsidiaries of the group. Initially, only EUR450 million of the bonds will be guaranteed, with a gradual increase based on a future EBITDA multiple. Moody's assigns a relatively low value to the pledge on shares in the event of distress.

In addition, Moody's notes that the new bond indenture permits additional senior priority indebtedness of EUR100 million in the form of a revolving credit facility. Once this facility is activated, it will rank ahead of the notes and create subordination of both the existing and the new notes. The rating on the existing EUR268 million senior unsecured notes, due 2015, remains unchanged at B3 (LGD5, 89%). The existing EUR268 million notes are structurally and contractually subordinated to the group's other existing indebtedness, as the notes are senior unsecured and do not benefit from any guarantees from operating subsidiaries.

Rating assigned today:

- Senior Secured rating of (P) B1, LGD3 - 47%, assigned to the proposed EUR700 million notes issuance.

The last rating action on NWR was implemented on 18 June 2009, when Moody's changed the outlook on NWR's ratings to negative from stable, reflecting deteriorating market conditions in the coal industry and expectations that the company's credit metrics were likely to deteriorate at a time when demand patterns remained uncertain.

The principal methodology used in rating NWR was the Moody's Global Mining Industry rating methodology, published May 2009, which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating NWR can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in the Netherlands, New World Resources N.V. is the largest hard coal mining group in the Czech Republic, and operates through its main subsidiary OKD a.s. During 2008, NWR sold approximately 12.5 million tonnes of coal and reported more than EUR2 billion in revenues and EUR697 million in EBITDA. During the first nine months 2009, the company reported a significant reduction in volumes sold, which resulted in revenues of EUR776 million and EBITDA of EUR111 million, respectively down by 44% and 78% compared to the same period of 2008.

Milan
Paolo Leschiutta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Telephone:+39-02-9148-1100

Madrid
Paloma San Valentin
Senior Vice President
Corporate Finance Group
Moody's Investors Service Espana, S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P) B1 to New World Resources' proposed notes; outlook negative
No Related Data.
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